We have acted for vendors in a number of Court disputes concerning whether a NSW real estate agent is entitled to commission following a sale.
Problems commonly arise where an original agency agreement expires, or is terminated and another agent achieves the sale of property. If the vendor sells to a party that the original agent claims he "introduced", that agent may have a claim for commission and the vendor may be faced with paying 2 commissions.
On 3 September 2020 the NSW Court of Appeal gave a judgment on this issue: Outerbridge v Hall (Outerbridge). A day later the WA Court of Appeal gave a judgment on a boat sale commission dispute. This has prompted us to revisit this topic.
Outerbridge reminds us that disputes over claims for commission require close examination of:
- The exact words in the relevant agency contract and their meaning; and,
- All circumstances related to the cause of the sale.
Each agency contract must be separately considered for its wording. Any wording can be negotiated. The contract will usually use words that require the first agent to prove that they were the "effective cause" of the sale in order to be entitled to the commission. The agent will normally be entitled to commission on this basis even if their agency term has expired and another exclusive agent has been appointed as a replacement and sells the property. This provision can create risk for vendors.
The Outerbridge case usefully revisits the meaning of the phrase "effective cause". Some of the key principles stated and quoted with approval in this case were:
- A mere introduction of the purchaser is usually not sufficient;
- It is a question of fact as to who was the "effective cause of a sale";
- Two agents acting independently can be the effective cause;
- "Was a sale really brought about by the act of the agent";
- Look at matters of substance and not form;
- The Court must consider and evaluate: "all circumstances which may have had some causal relationship to the sale"; and,
- No specific rules can be applied.
These disputes can be factually complex. A sale of a house can involve many meetings, conversations, open house inspections, diary entries and emails over several months. If the dispute ends up in court, it may require affidavits from the agent's director and/or employees, the vendor, the buyer and perhaps a second agent. The parties may end up spending substantial legal fees as compared to the commission sum, in just gathering this evidence and analysing it at an early stage.
It can also be difficult for the vendor's lawyer to properly advise their client early in a dispute. This is because the first agent will have had telephone conversations, emails and meetings with the buyer, when the vendor was not present, nor copied in.
We have found it useful at an early stage, when acting for a vendor in a dispute, to request the agent's lawyer to provide the documentary evidence of the contact they claim to have had with the buyer. This can include agent's phone records, diary entries and emails. If this is provided, both parties will better understand the true nature of the dispute and their client's prospects. The same information may be needed from a second agent, if one was involved in the final sale. Agents who have well organised and detailed records will be in a good position to provide this evidence quickly.
In the Outerbridge case the first agent failed in his commission claim, even though he introduced and negotiated with the eventual purchaser and had a very significant involvement, including obtaining an offer which was first accepted and then rejected. The evidence in the case established that this was mainly due to the first agent going away overseas on Christmas leave and being uncontactable, with his introduction "exhausted" and the second agent reviving the purchaser's interest and subsequently obtaining the sale at a higher price.
Given the factual complexity, uncertainty and significant legal costs that an agent's commission claim can cause, we would recommend that for at least commission entitlements of under $100,000 (being the Local Court limit) a sunset date is negotiated into the agency contract. The contract could provide, for example, that the agent will have no right to any commission, regardless of the work they have done, if a sale occurs after a nominated time period has passed (say between 6 and 12 months) after their agency term has expired. To be fair to the original agent, it is unlikely that an anxious buyer would agree to delay an exchange that long, just to circumvent the agent's commission at the vendor's request.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.